September 19th, 2013
We previously looked at the doctrine of election, where a party generally must renounce the benefits received from an estate (or trust?) before he or she can challenge the will (or trust?). In Estate of Boyar, the Illinois Supreme Court sidestepped the question of whether the doctrine of election should be extended to challenges to amendments to living trusts in cases where the trust serves the same purpose as a will.
Where Illinois did not weigh in, a Florida appellate court did.
In Fintak v. Fintak (link via FindLaw), a Florida appellate court has held that “the settlor of a self-settled trust funded with his own assets is not required to renounce any benefits received under the trust before he can challenge its validity.”
Edmund Fintak established the Edmund P. Fintak Sr. Irrevocable Trust, which was a self-settled trust funded with Edmund’s assets. In January 2007, Edmund started receiving income from the trust. In February 2007, Edmund’s children began incapacity proceedings which were dismissed in Edmund’s favor. Afterward, principal from the trust was used to directly pay Edmund’s bills rather than to make distributions directly to Edmund to pay those bills.
In August 2007, Edmund sued to set aside the trust based on coercion. In 2010, he executed a codicil exercising a power of appointment under the trust. Edmund then filed a second amended complaint alleging, among other things, undue influence and lack of testamentary capacity.
During the pendency of the litigation, Edmund died. His personal representative filed a petition for probate in Michigan that included the trust as a beneficiary of Edmund’s estate and filed an inventory of Edmund’s estate listing the trust as an asset.
The defendants to the trust litigation claimed that Edmund (and, later his personal representative) was barred from bringing actions for undue influence and lack of testamentary capacity because Edmund failed to renounce benefits received under the trust and the personal representative took an inconsistent position by listing the trust as a beneficiary and asset of Edmund’s estate. Based on these facts, the trial court entered summary judgment on these claims against Edmund.
The Florida appellate court reversed.
The trial court had ruled that renunciation of benefits received under the trust was a condition precedent to the claims for undue influence and lack of testamentary capacity, and, therefore, a lack of renunciation was fatal to those claims.
The appellate court, however, noted that all the cases relied upon in support of applying the renunciation rule involved the receipt of benefits from an instrument executed by a third party, and which, upon that third party’s death, the validity of the instrument was challenged by a legatee, devisee, or beneficiary whose interest derived solely from the instrument itself.
No case in Florida or any the parties were able to identify from any other jurisdiction had held that a settlor of a self-settled, inter vivos trust must renounce any benefits received before he can challenge the validity of a trust that he himself created and funded with his own assets.
The appellate court further opined that “[w]e believe no legal precedent exists for this proposition because it is axiomatic that one who funds a trust with his or her own assets does not have to renounce any benefits received as a condition precedent to instituting a challenge to the validity of the trust.” Edmund was legally entitled to receive the benefit of the assets even if the trust never existed and, if the trust was invalidated, no other party besides Edmund would have an interest or claim in the assets held in the trust. The only differentiating factor between the assets being held in trust or free of trust by Edmund is the level of control Edmund had over the assets.
The facts and holding of this case suggest that the ruling may be narrow – self-settled inter vivos trusts – but with the door open a crack, we can expect to see attempts to expand upon this ruling. Notably, the appellate court did consider possible abuse of this ruling by settlors, but disregarded it as a risk inherent to any litigation.